From Lender of Last Resort to Global Currency?
A natural comparison is with the realisation, through numbers released by the Federal Reserve in December 2010, that European banks took a very big slice of Fed aid during the recent crisis. Some European banks (such as Dexia of Belgium or Barclays of the UK) actually ranked among the chief recipients of liquidity provision. In other words, the Fed has found itself in a situation that is not unlike that of the Bank of England in 1866. The reason is that, like it or not, the monetary authorities in charge of international currencies always end up acting as a de facto global lender of last resort. This, we argue, is part of the very process through which the international prestige of currencies is retained or promoted. Of course, a historical difference is that the US Congress may be much less willing to go along with that. The hitch is not the different economics. It is the different politics.